German Bond Yields Headed for Lows as ECB Fuels Euro-Debt Rally

  • ECB set to expand bond buying by 20 billion euros from April
  • Commerzbank sees 10-year yield dropping to zero in 2nd quarter

With just four days packed with economic data and the European Central Bank set to begin its expanded debt purchases, German government bonds look to extend their advance next week.

Signals from policy makers including ECB Chief Economist Peter Praet that the central bank could cut interest rates further have helped push bond yields lower. That’s even as the euro-area’s annual consumer-price inflation rate is forecast to rise to minus 0.1 percent in March, according to analysts surveyed by Bloomberg. Benchmark German 10-year bund yields will drop to zero next quarter, according to Commerzbank AG, ranked as the top dealer by the nation’s debt agency.

“Inflation is still too low for the ECB,” said Rainer Guntermann, a fixed-income strategist at Commerzbank in Frankfurt. “What we already saw from the ECB over the past week was more outspoken rhetoric with regard to the possibility of rate cuts. And we’ve got much more aggressive ECB policy about to start in April. Spreads across the board will most likely test the lows from last year and even bund yields, given the scarcity.”

Germany’s 10-year bund yield fell three basis points, or 0.03 percentage point, in the four days through March 24, to 0.18 percent as of the 5 p.m. London close. That’s about 13 basis points from its record-low 0.049 percent posted in April 2015. The 0.5 percent security due in February 2026 rose 0.315, or 3.15 euros per 1,000-euro ($1,117) face amount, to 103.135.

Europe’s bond markets are closed March 25-28 for the Easter holiday.

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